The reserve in any group of policies originates in the excess of premium receipts over payment of claims. The premium receipts are more than the payments in the beginning and less after a point.
The excess receipts are accumulated at the assumed rate of interest and build up the ‘Reserve’ up to a point of time, the ‘reserve’ grows, particularly, because of such receipts. It is to be noted again here that the reserve is accumulated on the assumed mortality and interest.
The reserve based on this assumption is compared to the funds based on the actual experience. The difference may create ‘surplus’, or deficit.
As has been noted that the reserve accumulates at a point and starts declining thereafter because of heavy mortality and receipts of premium at the advanced age.